Moneycontrol PRO
Upcoming Webinar:Prashant Shah explains ‘Irrelevance of Bull & Bear Markets for Success in Technical Analysis’. Register For Free!

Hello World | What cities of the future can learn from the crypto world

Municipal bonds are not very popular. But perhaps in the future, cities could be run on blockchain and retail investors could confidently buy into city tokens.

June 09, 2021 / 04:21 PM IST

Note to readers: Hello world is a program developers run to check if a newly installed programming language is working alright. Startups and tech companies are continuously launching new software to run the real world. This column will attempt to be the "Hello World" for the real world.

This morning El Salvador’s popular president Nayib Bukele announced that the country has approved Bitcoin as legal tender. That is, you can use Bitcoin in El Salvador to buy and sell goods and services. The Salvadoran Congress voted 62 out of 84 in favour of the bill.

hello-world-logo-258x258A few minutes earlier, Bukele was on Twitter Spaces, broadcasting to over 20,000 listeners from across the world about the historic move. The president also took questions from dozens of listeners as he painted an optimistic view of the future.

“This is an opportunity for the growth of the economy and the country and of the people,” said Bukele. The Republic of El Salvador is a Central American country with a population of just about 70 lakh—that is about half the population of Bangalore. The country’s nominal gross domestic product as of 2020 was $24.784 billion (India is at $3 trillion).

Size notwithstanding, El Salvador has created history today. “People make fun of the fact that we’re a small country but we are creating history here...this will be good for the country, people, and its investors,” said the 39-year-old president. Several other countries in Latin America are seriously considering the possibility of using crypto currencies. In 2015, Ecuador issued its own cryptocurrency.

Close

There are obvious benefits for El Salvador in this. The country thrives on remittances sent home by workers (mostly in the US). In 2020, nearly $6 billion was remitted. Using Bitcoin will help families cut out middlemen and save on commissions. It will also create newer economic opportunities in the country which has only been using the United States dollar as its official currency since 2011.

El Salvador will also offer permanent residency to cryptocurrency entrepreneurs, improving the country’s talent pool and eventually digital infrastructure. Nearly 70% of the country’s population has no bank account. This will help improve financial inclusion in the country as well.

There are several challenges to be overcome if this is to succeed. Bitcoin is not the most energy-efficient cryptocurrency. Neither is it fast enough to conduct meaningful transactions or accepted by international finance organisations. All this means El Salvador has a long way to go before Bitcoin becomes a viable currency.

While at the country level, what El Salvador is doing is revolutionary, there are several ideas to be explored at the city level as well. Two years ago, the city of Berkeley proposed to do an initial community offering, where investors could buy into municipal bonds that are enforced using smart contracts on the blockchain. The proceeds could go to building better roads or hospitals.

Municipal bonds have been in India since the late 1990s. First off the block to issue municipal bonds was the city of Bengaluru in 1997, to raise Rs 125 crore. It spent the money on better roads and drains. This was followed by Ahmedabad in 1998. More recently, Amaravati raised Rs 2,000 crore in 2018. Surat, Hyderabad and a handful of other cities have also raised capital from municipal bonds.

Municipal bonds, however, are not very popular with retail investors. Most cities have poor credit ratings and accounting practices are often questioned. Blockchain enthusiasts envision a future where cities are run on blockchain and retail investors can confidently buy into city tokens. This might sound impossible in the present, cities of the future will embrace newer ideas. All it takes is an El Salvador-like city to start.
Jayadevan PK is a storyteller who focuses on business and technology. His first book, Xiaomi: How a Startup Disrupted the Market and Created a Cult Following, was published by Harper Collins in April 2021.
first published: Jun 9, 2021 02:30 pm

stay updated

Get Daily News on your Browser
Sections
ISO 27001 - BSI Assurance Mark